HP Pursues Sun Customers

Hewlett-Packard said Friday it will offer Sun Microsystems customers $25,000 as an incentive to switch to HP systems running Linux, according to a report in Reuters.
Hewlett-Packard Friday said it will offer Sun Microsystems' customers a $25,000 incentive to switch to HP systems running Linux, according to a report in Reuters.

The offer from HP, who did not return calls for comment, comes in the midst of a bad period for Sun. On Monday, the once high-flying systems vendor warned that it would run a loss of between 7 cents and 10 cents per share in the most recent quarter, a significantly higher loss than the roughly 2 cents per share loss analysts were anticipating.

On Thursday, Merrill Lynch technology analyst Steven Milunovich, in an open letter/research note, urged Sun to slash as much as 15 percent of its workforce and focus on being a niche player in mission-critical computing or risk being acquired -- or worse.

HP appears to be taking Sun's current woes as an opportunity to press its advantage and apply further pressure on Sun's margins.

"This is really the type of thing that companies do all the time. They see a competitor who has a weakness and they go after it," Gordon Haff, analyst with Illuminata, told internetnews.com. "IBM and Sun have both been aggressively going after HP customers, particularly Alpha customers, which they feel are vulnerable because of the transition away from Alpha."

He also noted that discounting is a day-to-day reality in the industry, and it is entirely possible that a Sun customer looking to switch to HP would have been able to negotiate a $25,000 discount anyway.

But Haff doesn't think a price war is in the offing.

"HP has expressed, in their last report, some concerns about their own margins in certain markets," Haff said. "I don't necessarily see HP trying to get into a price war with Sun in this case."

Hass said between Sun's warning and Milunovich's letter, "HP is looking to capitalize on a certain feeling out there, or certain impression out there, that Sun has fundamental problems. "That's not to say that Sun does have fundamental problems, but there's certainly a perception out there in some circles that Sun is through."

Sun's Director of Communications Michael Hakkert, has said the company is making steps to return to profitability, and pointed to Sun's fiscal 2003 results, which showed that Sun improved its margins by close to 5 percent on servers, and 1.9 percent in services, while cutting $477 million for its administrative overhead and costs during the year.